Largo Resources (CVE:LGO) said it has signed an agreement for a C$12 million convertible bridge loan, the proceeds of which will be used to finance development costs for its Maracas Menchen mine and debt servicing requirements.
The term sheet was signed with Arias Resource Capital Management, with the term loan facility having an interest rate of 20 percent per year.
The bridge loan will have a six month term, Largo said, and will be drawn down over a number of weeks, on a bi-weekly basis, subject to regulatory approvals. It is expected to close by the end of this week.
All or any portion of the outstanding debt under the facility will be convertible into common shares of Largo, at a price of C$1.01 per share.
Arias will also be granted the option to subscribe for up to C$40 million of securities under any proposed offering of Largo common shares, on or after the date of the loan agreement.
Earlier this week, Largo appointed Mark A. Smith, the former CEO of Molycorp and the current executive chairman of NioCorp, as its new chief executive, to lead the company as it ramps up to commercial production.
The vanadium miner also announced that it will need to raise more equity capital as it negotiates with its lenders to restructure its debt. The company said it has identified additional capital expenses to be made in 2015, including the improvement of recoveries of the leaching system, which, together with working capital needs, will require additional funds of about C$20 million in 2015.
This includes certain payments required to be made under its current debt facility, Largo said, which the company is currently looking to restructure, having signed an indicative term sheet with its lenders last month.
Largo is aiming to develop its Maracas Menchen mine in Brazil to phase 1 capacity by the third quarter. The mine started production last August. The Toronto-based miner is expecting 2015 production to come in at 17 million pounds of vanadium pentoxide, at a cost of US$4.15 per pound, although costs are expected to drop to US$3.21 per pound by the end of this year.
Looking out to 2016, the company has the option to complete a $32 million expansion, which would raise capacity by some 50 percent and make Maracás the largest and lowest cost vanadium mine in production.